Should your small business be outsourcing payroll?

You’ll already know that as soon as you start to employ people, you need to organise payroll, and you need to do it well.

Not only are there serious penalties for failing to inform HMRC about what you are paying your people, but you’ll have a number of unhappy staff members if there is any hint to payroll errors or issues.

Therefore, it’s not surprising that most new employers hire a bureau (usually their accountant) to do it for them. And if this works well, you’ll have no reason to consider changing. “If it ain’t broke, don’t fix it” comes to mind.

But, through our work with thousands of small businesses and many of our accounting firm partners, time and again we hear that this approach can be painful, and people want a better solution.

The biggest area of stress is usually gathering all the information needed for payroll each pay period. And even with the simplest payrolls, where everyone is on a fixed salary paid once each month, there can be lots of information you need to enter into the payroll system for it to be accurate, including:

• New starters – including how much pay they are due in this pay period
• Leavers – including how much pay they are due this pay period, any accrued holiday entitlement they need to be paid for, and any termination payments
• Pay rises
• Changes of hours
• New family leave, such as Maternity or Paternity
• Sick leave
• Unpaid absences
• Sales commission or bonuses
• Changes to Attachments of Earnings orders
• Changes to pension contributions

Of course, there are even more complications if you’re paying employees on an hourly basis, and when you throw in bicycle loans, childcare vouchers, payroll giving and other benefits you’re looking at even more bits of information to collect, and calculations to make. Calculations that must be correct.

Regardless of whether you outsource your payroll, these figures need to be gathered, and some calculated in-house, to supply to your payroll bureau.

It’s no surprise lots of small companies struggle to gather the information efficiently and in time for payroll.

In this blog, we look at the different options available so you can make an informed decision on the best choice for your business.

Using a payroll bureau

If you outsource payroll, you need to collect the relevant information into one report or file. Have you ever done this and then remembered “just one more thing” several times? You wouldn’t be alone.

This won’t necessarily be an issue, but there may be associated costs and delays, running the risk of payroll being late or costly.

HR software can help. Most (though not all) HR software for small companies stores all the information needed for payroll. If it’s up to date, it should be easy to export a report for your payroll bureau.

Your bureau will then need to send a report back to you for approval—either via payslips for all your team or perhaps a Gross to Net report showing the breakdown. Human error is inevitable at times, so you may need to respond with changes to be made.

When you have approved the pay calculations, you need to pay your team, HMRC and the pension company you use, and get payslips to your team. This is often done by email, though many companies still issue paper payslips.

Using cloud-based integrated HR and payroll software

If you use a cloud-based software package which offers both HR and payroll, then the process is faster and simpler.

While you still need the same information, your payroll software automatically uses the information that is already in the HR software—with no additional work. For most small companies, this saves several hours each pay run, and removes the risk of data entry errors.

The best cloud-based software make reviewing payroll much easier, too, with easy to use reports highlighting any changes from one pay period to the next. Spot something that needs changing? Integrated software allows you to make the change straight away, then re-run payroll. All in just a few minutes.

When you’re happy with the figures, you can instantly file your information with HMRC and publish payslips for your team on their own employee records.

Some cloud-based software products will also create a payroll journal for you, and you may even be able to have an integration to your cloud accounting software so you can send the journal directly there.

Most cloud-based payroll software is integrated to the major pension companies, so it’s easy to send that information directly, saving yet more time.

Does all cloud-based payroll software offer these advantages?

Actually, no.

Most cloud-based software for UK small business payroll is not integrated with HR software.  There are several companies just offering cloud-based payroll software, and all the main cloud-based accountancy software packages, including Xero and QuickBooks Online (“QBO”), have payroll options—but most of these are not integrated to HR software.

Many cloud-based payroll software will offer an employee “portal” where your people can view their payslips, though some still email payslips instead. This can be helpful, but you’ll still need to enter all the information each month.

If using integrated HR and Payroll Software is that easy why doesn’t every company run payroll using it?

Until very recently, it has not been easy— there haven’t been many cloud-based, integrated HR and payroll software options for small companies.

The vast majority of small businesses were running payroll long before it was possible to do entirely on the cloud. And it has historically been very challenging moving from one system to another (although not any more).

There’s also been a lot of uncertainty from small business owners around doing payroll in-house. It can feel scary, and there are many organisations that feel more comfortable paying quite a lot more for access to experienced payroll staff, given how difficult it always used to be to run.

Is all integrated HR and Payroll software the same?

No. There are more good options on offer now than there were even a year ago.

But they are all different from each other. Some offer more functionality, which comes with more complexity, and others are more straightforward and focus on being really simple to use.

Some offer phone support where you can talk to someone who understands payroll – while others don’t. How important that is to you depends on your own payroll knowledge.

What is the best way to pay your staff?

There is, of course, no single right answer to this question.

We expect that in 10 years’ time most small companies will use cloud-based HR and payroll software integrated with their finance software, pension companies and more. Payroll bureaus will start to offer more options like this themselves, but whether you should change, and when, is a question only you can answer.

You will need to think about your company’s situation and decide.

If your current system is working well and you are comfortable with the cost, then it’s probably best to leave things as they are now. “If it ain’t broke, don’t fix it!”

But if your process is painful, think about where that pain is coming from. It may be that a rota and time-keeping specialist app could be the answer. Or if you have lots of staff changes, or are keen to reduce costs, then you might find that an integrated cloud-based HR and Payroll software product is worth considering now.

Want to learn more about citrus HR’s refreshingly simple HR and Payroll software? Find out more here.

Get in touch on info@citrushr.com or give us a call on 0333 014 3888 to find out more about how we can help your business with friendly, expert HR support.

The content of this blog is for general information only. Please don’t rely on it as legal or other professional advice as that is not what we intend. You can find more detail on this in our Terms of Website Use. If you require professional advice, please get in touch.